Not all gloom as economy to grow by 6.1pc next year

Traders at Muthurwa Market, in Nairobi, on April 14, 2020 carry on with their businesses without being mindful of coronavirus. PHOTO | DENNIS ONSONGO | NATION MEDIA GROUP

What you need to know:

  • This time around, Kenya is forecast to fall deeper into debt as the government borrows more heavily in response to the virus outbreak.
  • The IMF recently doubled access limits of its emergency financing facilities and various governments, including Kenya, have already made applications.

Things are looking gloomy at the moment, but the good news is that Kenya’s economy is expected to rebound next year when it will grow by 6.1 per cent.

However, this might be disrupted by the 2022 campaigns. In a new report, the International Monetary Fund (IMF) predicts that the “economic forecasts at this juncture are subject to higher-than-usual degrees of uncertainty”.

As the coronavirus pandemic continues to disrupt our way of life, IMF says Kenya’s economy will grow by a paltry one per cent this year — a performance far worse than the 2008 post-election violence and only witnessed during the Kanu regime days.

Simply put, Kenyans should brace for budget cuts and a disruption of the ‘welfare’ state as the government struggles with depressed earnings.

Globally, the world will go through a recession only witnessed in 1930s — and this time around, Kenya is forecast to fall deeper into debt as the government borrows more heavily in response to the virus outbreak.

It also means that the Jubilee administration will never achieve the promised “double digit” growth — and that the Uhuru Kenyatta government will not deliver on the Big Four Agenda dream.

IMF REPRIEVE

The country’s debt, as a share of its gross domestic product, is expected to rise from 60.8 per cent last year to 64.5 per cent this year and 66.8 per cent in 2021.

Nevertheless, the IMF advises the government to consider making cash or in-kind transfers to help people under strain, while also providing “targeted and temporary support to hard-hit sectors”

Central Bank data shows that due to the 2008 post-election violence, the economy grew by 1.5 per cent, and this led to job losses as the agriculture and tourism sectors took the worst hit. The new report notes that Kenya is “highly vulnerable to global financial conditions”.

While the fund does not expect the Kenyan economy to sustain as large a loss due to the global tourism slump as it is anticipated in Africa's island nations, the current closure of hotels in the tourism circuits means it might take time before businesses resume.

Although the IMF has set aside a Sh106 trillion war chest to support vulnerable countries from the Covid-19 pandemic, Kenya is not among the countries that will benefit from interest payment waivers since it is classified as a lower-middle-income country.

The IMF is granting a reprieve to countries whose per capita income is below $1,215 (Sh128,790), which is lower than Kenya’s $1,710 .

Compared to many other countries, Kenya’s one per cent growth is deemed better than most sub-Saharan countries with no diversified economy and which rely mainly on oil or mineral exports.

The IMF expects the region's overall economy to contract by 1.6 per cent this year, compared to an expansion of nearly three per cent last year. This, according to IMF, is “the worst reading on record” for the sub-Saharan region.

SAFETY MEASURES

For the region, the reports says, the economic damage of Covid-19 could prove long-lasting: “By exacting a heavy human toll, upending livelihoods, and damaging business and government balance sheets, the crisis could retard the region’s growth prospects in the years to come.”

But even with that, the IMF gives a relatively positive rating to the quality of Kenya's healthcare system — but says the immediate future appears bleak for most Africans.

“The measures that countries have had to adopt to enforce social distancing are certain to imperil the livelihoods of innumerable vulnerable people,” the new report finds. “Given the limited social safety net available, people will suffer.”

African countries are urged as an immediate priority to do “whatever it takes” to ramp up spending on public health, “regardless of fiscal space and debt positions”.

The IMF says for countries to survive, donor nations and multilateral institutions must provide generous assistance to African countries as they confront the virus and its attendant economic challenges.

“The ability of countries to mount the required fiscal response is highly contingent on ample external financing, on grant and concessional terms, being made available from the international financial community.”

Already, the IMF has set aside $1 trillion in available resources, to support vulnerable countries through various lending facilities. This is an amount that can fund Kenya's current national budget (about Sh3 trillion) 35 times.

RECESSION

The IMF recently doubled access limits of its emergency financing facilities and various governments, including Kenya, have already made applications through the Rapid Credit Facility and the Rapid Financing Instruments — the former is only for low-income countries.

IMF says the Catastrophe Containment and Relief Trust can currently provide about Sh53 trillion in grant-based debt service relief, including the recent Sh19.6 trillion pledge by the United Kingdom and Sh10.6 trillion provided by Japan as immediately available resources.

The IMF and the World Bank have renewed their calls to the official bilateral lenders to suspend debt repayment from International Development Association countries that request leniency. This applies to those countries with gross national income per capita below Sh124,550.

"This would help with their immediate liquidity needs to address the challenges of the pandemic," IMF says in its report titled "The Great Lockdown", which looks at the impact of the Covid 19 pandemic on the global economy.

The fund notes it is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.

"The Great Lockdown, as one might call it, is projected to shrink global growth dramatically. A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound," the IMF notes in the World Economic Outlook report dated April 2020.

FINANCIAL CRISIS

The outlook says there is extreme uncertainty around the global growth forecast because the economic fallout depends on uncertain factors that interact in ways hard to predict.

These include the pathway of the pandemic, the progress in finding a vaccine and therapies, the intensity and efficacy of containment efforts, the extent of supply disruptions and productivity losses, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioural changes (such as people avoiding shopping malls and public transportation), confidence effects, and volatile commodity prices.

But IMF says the pandemic has set in motion a financial crisis like no other to hit the global economy.

"This crisis is like no other. First, the shock is large. The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis," IMF says in the report.

A full version of the report is expected next month.

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